Thursday, October 21, 2010

Dump-and-chase – works in hockey (sometimes) but not in investing

If you’re a hockey fan, you know all about the dump-and-chase strategy. That’s when the offensive team gives up possession of the puck by shooting (or ‘dumping’) it into the attacking zone and then swarms after it to regain possession and set up a scoring chance.

In these difficult economic days, too many investors are pursuing a similar strategy with their investments. It’s not a good strategy, especially for long term success – here’s why.

  • When markets are volatile, it is very difficult to predict when a stock will go up or down. That is causing panicky investors to quickly dump underperforming equity investments (a stock or equity mutual fund) and go chasing after others that ‘look like’ they might go up. But ask any expert and they will tell you that quick selling to buy ‘the next big thing’ is almost impossible in practice.
  • There is no doubt that risk is a fact of life when it comes to financial markets. But there are different kinds of risk and one of the biggest is jumping into and out of the market instead of staying invested. That is a costly strategy because market upturns can be very sudden and a ‘dump-and-chaser’ can easily miss them.
  • The inescapable fact is: it simply doesn’t pay to chase performance. The keys are to stay invested for the long term and effectively manage risk by carefully selecting investments and employing an effective asset allocation and diversification strategy that takes full advantage of opportunities in any market.
There’s no single diversification formula that works for everyone – it depends on your goals, financial situation, the amount of time you have to invest and most importantly, your personal tolerance for risk. Your professional advisor can examine your portfolio structure and performance and help you put together a diversified portfolio that offers a comfortable blend of risk and return. No dumping-and-chasing required.

Sunday, October 3, 2010

Do you need a lifetime income guarantee?

Are you getting ready to retire or already retired? Are you looking for a secure, predictable, guaranteed retirement income? The answer could be a Guaranteed Investment Fund (GIF) with Lifetime Income Benefit.

A GIF (also known as a segregated fund policy) is a form of insurance that combines the growth potential of investment mutual funds – including built-in diversification, liquidity and professional management -- with the features of an insurance policy to provide the security of a guaranteed income for life. Depending on the features you choose, your GIF could provide:
  • A predictable income guaranteed for life, starting as early as age 50
  • Payments based on an income percentage that increases with age and will never decrease (unless withdrawals exceed the annual guaranteed amount) regardless of how your policy performs -- thus protecting you against the risks of market returns and volatility
  • Payments that can be deferred to increase the amount of the annual lifetime income
  • The possibility for income ‘resets’ – usually every three years – that can increase the amount of your income payments to help offset inflation. As your policy market value increases, you have the option of using those gains to ‘reset’ your lifetime income amount
  • Death benefit guarantees. When you die, your spouse, estate or another designated beneficiary will receive the greater of the market value of your GIF policy at the date of your death, or the death benefit guaranteed amount, which can range from 75% to 100% of all contributions allocated to the policy (less reductions for any withdrawals). You select the 75% to 100% guaranteed death benefit payout when you obtain the policy. Upon death, proceeds of your policy can be paid directly to a beneficiary other than your estate, thus avoiding the time and expense of probate
  • Access to your assets whenever they are needed but certain fees or RRIF minimums may apply to withdrawals. Withdrawals in excess of the annual guaranteed income amount will affect your lifetime income amount
  • For business owners and professionals, a GIF offers the potential for creditor protection of personal assets
If you’re looking for a measure of certainty in your investment portfolio and your retirement income, a GIF could make sense for you. Talk to your financial advisor about whether it’s the right fit for your financial plan.